REUTERS GROUP PLC - THIRD QUARTER RESULTS
Business performance
Reuters Group
- Group revenue for the three months to 30 September was 789 million British pounds (2002: 855 million British pounds), down 8% on an actual basis.
Reuters
- Reuters revenue was 658 million British pounds (2002: 716 million British pounds), down 12% on an underlying basis.
- Reuters recurring revenue was 609 million British pounds (2002: 654 million British pounds), down 10.9% on an underlying basis, slightly ahead of Reuters forecast decline of 11-12%.
Tom Glocer, Reuters Group Chief Executive, said: "Trading performance this quarter was a little better than expected, driven by a reduction in the overall rate of net cancellations for the third consecutive quarter.
We continued to gain traction in the US market and saw a seventh big competitive win this year for Reuters Plus, which was chosen by Fidelity's National Financial to replace 5,000 positions of its in-house system. We now expect the full year decline in recurring revenue to be 11% or slightly better."
"Fast Forward is now in full swing, so the pace of change has accelerated this quarter. I was particularly pleased to be able to announce that we have negotiated an advantageous new commercial deal and stock repurchase agreement with TIBCO; that Reuters is to become the first company to let its customers connect with AOL, MSN and other widely used instant messaging networks; and that we have concluded a financially attractive property deal to bring most of our London staff under one roof in Canary Wharf."
"At a time when so much of the Reuters story depends on our ability to deliver, it is particularly encouraging to be able to report that we are executing according to plan."
Reuters Group
Reuters Group (RTR.L; RTRSY.O) revenue for the three months to 30 September 2003 was 789 million British pounds, a decline of 8% on an actual basis and 10% on an underlying basis on the same period last year.
As reported on 22 October, revenue for Instinet Group Incorporated (INGP.O), the electronic brokerage in which Reuters has a 63% stake, was
132 million British pounds for the third quarter under UK GAAP, a decline of 6% on an actual basis and 2% on an underlying basis on the same period last year.
Reuters
Reuters core revenue, excluding Instinet and joint ventures, for the three months to 30 September 2003 was 658 million British pounds, down 8% on an actual basis. On an underlying basis, adjusting for the impact of acquisitions (Multex and AVT), disposals (Wall Street On Demand) and exchange rate movements, this represents a 12% decline on the same period last year. Movements in exchange rates and a change in currency mix since the third quarter of 2002 meant that currency accounted for 1% of the difference between the actual and underlying declines.
Revenue by type
Recurring revenue from subscription products, which represented 93% of Reuters core revenue for the three months to 30 September 2003, was 609 million British pounds, down 10.9% on an underlying basis compared to the same period last year. Third quarter recurring revenue came in a little ahead of guidance following a slightly better than expected sales performance, with the quarter showing the lowest level of net cancellations since the first quarter of 2002. While there has now been an overall reduction in the average rate of net cancellations for three successive quarters, this improvement has been driven primarily by the US, with no evidence yet of any improvement in Europe.
Outright revenue, which represented 3% of Reuters core revenue, was 23 million British pounds, down 30% on an underlying basis compared to the same period last year. While IT budgets in general remain under pressure, customers are showing some willingness to invest in projects to attract business from their customers and to improve compliance. This has led to modest revenue growth in two of Reuters three key areas of focus - Treasury Solutions and Risk Management. While the third area of focus - Content Management Systems - saw a revenue decline this quarter compared to the relatively high levels of activity this time last year, roll out of the next generation Reuters Market Data System (RMDS) is proceeding according to plan, with RMDS now being implemented by over half of Reuters largest 25 accounts.
Usage revenue was 26 million British pounds, down 9% on an underlying basis. Treasury usage revenues, boosted by volatile currency markets, showed strong underlying growth of 20%, with particularly encouraging volume increases in Forwards Matching, where Reuters is the biggest electronic broker, and in euro/dollar spot. The underlying decline of 31% in Investment Banking usage revenues was driven by Bridge Trading, which continued to see year-on-year volume decline but saw an improvement on the previous quarter.
Recurring revenue by product
Premium tier revenue, which includes Reuters 3000 Xtra, Dealing and BridgeStation, was 185 million British pounds in the third quarter, up 7% on an underlying basis year-on-year and up 2% from the previous quarter.
The number of premium tier accesses at period end stood at 97,000, up 9% on the equivalent period last year and 1% since the previous quarter.
This growth continues to be driven by Reuters 3000 Xtra, which saw both net new sales and installations exceed 3,000 this quarter. To broaden the appeal of Reuters 3000 Xtra to smaller sites, Reuters has also installed 1,500 'thin client' 3000 Xtra positions worldwide since the launch of this new delivery mechanism in July. The majority of these are trial installations, to help customers evaluate the potential to lower their total cost of ownership. Dealing accesses this quarter saw a similar rate of decline to the previous quarter. The number of mid tier Reuters Dealing Links (RDL) increased only slightly, reflecting the value of the premium Dealing desktop in the Treasury market.
BridgeStation saw the rate of decline in accesses slow compared to the previous quarter, as market conditions improved in the US.
Premium tier revenue per access increased by 1% on an underlying basis compared to the previous quarter, driven mainly by the change in product mix, with more 3000 Xtra, slightly fewer Dealing positions and fewer BridgeStations. 3000 Xtra pricing has remained stable, with the 1% decline since the second quarter mainly due to large installations attracting volume discounts. Average revenue per access for Dealing was also stable compared to the previous quarter, with a small increase in the average revenue per access for premium Dealing offset by the slightly increased proportion of RDLs. BridgeStation revenue per access also increased, as the proportion of higher priced versions grew.
Recurring revenue from 2000/3000 series products in the third quarter was 84 million British pounds, down 37% on an underlying basis year-on-year and 13% on the previous quarter, driven by cancellations and migrations to 3000 Xtra. Reuters has been working with its customers to develop migration plans for 2000/3000 series products, and has now set a global target to complete customer migration by end 2005.
Revenue from mid and low tier products was 67 million British pounds, down 12% on an underlying basis year-on-year and 2% on the previous quarter, with the biggest loss of accesses continuing to be in the lower priced domestic products.
Recurring revenue from all other sources such as exchange fees, software maintenance and datafeed site fees was 273 million British pounds, down 9% on an underlying basis year-on-year.
Revenue by customer segment
Revenue from Treasury in the third quarter was 252 million British pounds, down 9% on an underlying basis and 7% on an actual basis. Strong recurring revenue growth from Reuters 3000 Xtra continued to be offset by declines in 2000/3000 series and domestic information products, reflecting continuing centralisation of Treasury desks. Sales activity with Treasury customers is currently focused on rolling out a series of content and functionality enhancements to ensure that Reuters products remain deeply embedded in the way existing customers do business, and on expanding Reuters revenue base in areas of market growth such as automated bank to buy-side trading links, where the ADT product suite is the market leader.
Revenue from Investment Banking in the third quarter was 174 million British pounds, down 17% on an underlying basis and 12% on an actual basis. With the release for general sale of Reuters Knowledge and Reuters Trader, Reuters sales teams can now offer customers attractive migration paths from their 2000/3000 series and domestic products, which were the main sources of revenue decline in this segment this quarter.
Revenue from Asset Management in the third quarter was 157 million British pounds, down 13% on an underlying basis and 9% on an actual basis. Revenue increases from Reuters 3000 Xtra, Datascope (the end-of-day pricing service) and Lipper Funds data were more than offset by declines in legacy 2000/3000 series and domestic products. Major areas of sales focus in this segment are Barra risk analytics, now integrated into Reuters 3000 Xtra and BridgeStation, Reuters neutral order routing network and related services and a new version of the Reuters Portfolio Management System (RPMS) for the private banking and advisory market.
Revenue from Corporates and Media in the third quarter was 75 million British pounds, down 5% on an underlying basis and 3% on an actual basis, reflecting a robust revenue performance by core media products as contract renewals were favourably influenced by Reuters well-received coverage of the conflict in Iraq.
Fast Forward progress review
Reuters continued to make good progress on each of its key Fast Forward initiatives during the third quarter.
1. Make Reuters information indispensable
Reuters maintained its focus on four key aspects of information - content, analytics, community building and open access.
This quarter saw further enhancements to Reuters Fixed Income content and trading capabilities with the addition of JJ Kenny non-taxable Municipal Securities data and an agreement to distribute JP Morgan's electronic trading platform (JpeX) to Reuters global client base. Good evidence of content additions driving new sales came at Deutsche Bank and Scottish Widows, where there were sales wins for Reuters Research (formerly Multex) products. The streamlining of the content organisation accelerated, with the introduction of a single management structure for Editorial and numeric data operations. In Editorial, the removal of around 20 management positions has been counter-balanced by the recruitment of over 40 new journalists this year to produce an increasingly specialised news file to meet customer needs. In numeric data operations, Reuters announced that it will open a major English-language content centre in Bangalore, India, in January 2004 to help meet customer demand for new content while at the same time reducing cost.
In analytics, fund managers now have the option to gain easy access to Barra, the leading source of buy-side risk analytics, through their information workstations. The project to integrate Barra analytics into Reuters 3000 Xtra and BridgeStation was completed on schedule and the new product versions were released for sale on 30 September.
Community building activity this quarter focused on Reuters Messaging (RM), with announcements that Reuters is working with AOL, IBM Lotus and Microsoft to be the first company to let its customers connect with other instant messaging services.
Reuters key competitive advantage of providing open access to market data continued to build this quarter, with more big customers, notably Bank of America, Deutsche Bank and Merrill Lynch, signing up for Reuters next generation market data system, RMDS. There is also increasing customer take-up of the option to run RMDS on the Linux operating system, which offers customers high potential for cost savings.
2. Move to a new business architecture
Reuters new business architecture is central to its plans to improve customer service and competitiveness by simplifying the way it operates and realising economies of scale. Conversations with customers continue to show that they are receptive to the prospect of a simplified delivery architecture with potential to help them manage sharply rising market data volumes and lower their total cost of ownership. Plans remain on track to have the new business architecture ready to carry new products worldwide in 2004.
3. Simplify and segment our product line
Execution of Reuters segmentation strategy has accelerated during the third quarter, with further steps to simplify the product line by grouping all information and transaction products into four 'product families' and plans to reduce the total number of these products to below 50 by the end of Fast Forward. So far during 2003, 154 products have been made obsolete, including 40 in Q3, and Reuters is on track to remove another 100 products by year end. New product releases are going according to plan, with Reuters Knowledge and Reuters Trader now both released for general sale after successful early access customer trials.
4. Focus our Solutions business around our products
Reuters new commercial agreement with TIBCO and the announcement that it intends to reduce its 49% stake in TIBCO are key elements of the move announced by Reuters in February to slim down and re-focus its Solutions business. Central to this new agreement are the exclusive rights Reuters retains to sell Market Data Systems and Risk Management products for the financial services market.
5. Reduce and reshape our cost base
Reuters remains on track to deliver 55 million British pounds of net cost savings from Fast Forward in 2003. While Reuters continues to add staff in key areas of focus such as client training, front line Editorial and the new development centre in Bangkok, over 1,000 people have left the company this year.
6. Reinvigorate culture and behaviour
Reuters announced in September that it will move the majority of its London staff to Canary Wharf in 2005, having seen its New York operation become more cohesive and customer service oriented when it moved into a single office in Times Square. In addition to the benefits of having most of its people under one roof, Reuters will generate annual cost savings of 5 million British pounds from this move.
Reuters prospects
As a result of its slightly better than expected performance in the third quarter, Reuters now expects a full year underlying recurring revenue decline of 11% or slightly better.
In mid January 2004, after analysing its December sales figures, Reuters will issue a short statement to give recurring revenue guidance for the first quarter of 2004.
With cost savings continuing to outstrip revenue decline, Reuters remains confident of exceeding its 2002 full year normalised operating margin (pre-restructuring) of 13.1% in 2003.
Explanation of adjustments
A significant part of the adjustment from US GAAP to UK GAAP relates to soft dollar activities, primarily relating to the purchase of third party research products, as well as payments made as part of Instinet's commission recapture services. Under US GAAP, Instinet reports its transaction fee revenue from these businesses on a gross basis. Under UK GAAP these revenues and costs are not grossed up but are netted against each other.
Other revenue adjustments include interest income and movements in the value of investments held at the balance sheet date including mark-to-market gains and losses and impairments as well as realised gains and losses on disposals, all of which are not included as revenue under UK GAAP.
Contacts
Press - UK Tel: +44 (0) 20 7542 7800
Simon Walker
simon.walker@reuters.com
Press - USA Tel: +1 646 223 7728
Stephen Naru
stephen.naru@reuters.com
Investors Tel: +44 (0) 20 7542 7057
Miriam McKay
miriam.mckay@reuters.com
Notes
Reuters (www.about.reuters.com), the global information company, provides indispensable information tailored for professionals in the financial services, media and corporate markets. Our information is trusted and drives decision making across the globe based on our reputation for speed, accuracy and independence. We have 16,000 staff in 94 countries, including some 2,400 editorial staff in 197 bureaux serving approximately 130 countries, making Reuters the world's largest international multimedia news agency. In 2002, the Reuters Group had revenues of 3.6 billion British pounds.
Reuters and the sphere logo are the trademarks of the Reuters group of companies.
Reuters will hold two conference calls, at 09:30 GMT (04:30 EST) and 15:00 GMT (10:00 EST). To participate, please call Joanne Macaulay in London on +44 (0) 20 7542 7094.
Photographs are available in the Media Library at www.about.reuters.com
The full release can be downloaded via
http://about.reuters.com/investors/results/
Forward-looking statements
This document contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 with respect to Reuters Group's financial condition, results of operations and business, and management's strategy, plans and objectives for the Group. In particular, all statements that express forecasts, expectations and projections with respect to certain matters, including trends in results of operations, margins, growth rates, overall financial market trends, anticipated cost savings and synergies and the successful completion of restructuring programmes are all forward-looking statements. These statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to:
- Reuters Group's ability to realise the anticipated benefits of its "Fast Forward" transformation programme
- continued or worsened unfavourable conditions in financial markets
- the impact of currency and interest rate fluctuations on Reuters Group's reported revenue and earnings
- Reuters Group's exposure to a decline in the valuation of companies in which it has invested and of its lack of management control over all such companies
- difficulties or delays that Reuters Group may experience in developing or responding to new customer demands or launching new products
- the dependency of Reuters Group on third parties for the provision of certain network and other services
- any significant failures or interruptions experienced by the networks or systems of Reuters Group and such networks' ability to accommodate increased traffic
- changes in the regulatory or competitive environment
- adverse governmental action in countries where Reuters conducts reporting activities
- with respect to Reuters intention to reduce its TIBCO holdings, whether, when and by what method Reuters undertakes to dispose of the holdings as well as market conditions at such time or times.
For additional information, please see "Risk Factors" in the Reuters Group PLC Annual Report and Form 20-F for the year ended 31 December, 2002. Copies of the Annual Report and Form 20-F are available on request from Reuters Group PLC, 85 Fleet Street, London EC4P 4AJ. Any forward-looking statements made by or on behalf of Reuters Group speak only as of the date they are made.
Reuters Group does not undertake to update any forward-looking statements.